Expectations and Employment Dynamics in New Zealand Manufacturing

Abstract

The characteristics of short-run employment dynamics in New Zealand manufacturing and the role of business expectations are examined for the period since the 1970s, including the post-1985 employment slump. Based on econometric estimation, using both business survey based estimates of expectations and cointegration methods applied to conventional manufacturing data, we conclude that labour hoarding is present in manufacturing firms, that the short-run dynamics can be modelled as an error-correction process, that manufacturers' output expectations have a crucial influence on these dynamics and appear more important than relative price expectations, and that understanding how manufacturers' output expectations evolve is crucial to understanding New Zealand's recent manufacturing employment history. These conclusions appear robust for measuring employment dynamics by total hours worked while for numbers employed there was evidence of structural change during the post-1985 period for reasons that warrant fun her investigation.